The trade war started by Trump could be seen as him keeping his election promise of renegotiating US trade relations with the world. Or as the world's only superpower, the US, confronting what many believe is the emerging and next global superpower, i.e. China—but by all indications, it could be much more than that.
Aside from economically confronting China, President Trump also threatened trade barriers against the EU and Canada, should they not soften some of their trade restrictions against the US. Invoking “national security” as his rationale, Trump recently enforced tariffs on aluminium and steel from the two traditional US allies under section 232 of the 1962 Trade Expansion Act.
This prompted the EU to impose tariffs on 2.8 billion euro worth of US products last week, invoking immediate threats of counter-measures from Trump, who essentially spelled out that Canada and the EU need the US more than the US needs them, and that they know that. This may, however, prove to be an underestimation of the options available to other countries.
China, for instance, stopped purchasing soybeans from the US and started purchasing a lot more from Russia and Brazil in response to US tariffs on goods from China. But for western countries to follow suit could mean the end of what George H W Bush, after the fall of the USSR, termed as the “New World Order”, or the neoliberal world order, long-established by the Euro-Atlantic powers since at least as early as the 1990s—which increasingly is becoming the “Old World Order”.
As far as European leaders are concerned, what Trump is fundamentally doing is disrupting the old western world order. As with his way of negotiating, what will become of the World Trade Organisation set up by the west, where the west collectively made most of the rules? And what becomes of Nafta, and relations between the US and UK after Brexit?
Yet, the idea that the US has been the biggest victim of the neoliberal world order as Trump suggests isn't necessarily true, as it is US corporations that have benefitted most from it over the years, although, the average American, arguably didn't. Additionally, it can also be argued that it is the US and other western corporations that potentially have the most to lose as a result of Trump's policies, as the rules of trade established under the old order were not even negotiated between states but were created by corporations—the Trans Pacific Partnership Agreement which allows corporations to sue sovereign states is a perfect example of that.
Consequently, according to John Merrill, Former Chief of the North East Asia Division of the Bureau of Intelligence and Research at the US State Department, “There are doubts about alliances” within the Trump administration, “particularly when there is a perceived asymmetry between burdens and interests”. Trump also believes that “traditional alliance management emphasis that” the US “have had” with the EU and others “has fostered excessive dependency and created moral hazards” in relations. As a result, he is considering shaking up relations with traditional US allies (and vice-versa), potentially ending the dominance of the Euro-Atlantic bloc when it comes to influencing world order.
What is interesting about this, according to George Szamuely, senior research fellow at the Global Policy Institute, is that this has “always been the key to America's overwhelming presence in the world,” being the leader of “this massive Nato-European Union bloc” which has “given America this huge influence”.
But the fact is that America has “had to pay a price for that, and the price it paid was that it was running massive trade deficits with everybody.” For a long time, this “didn't matter very much because as long as the dollar was the world's reserve currency the trade deficits would eventually all go back to America. But now, Trump has sensed that that American economic supremacy is under challenge with the rise of China and the China-Russia bloc.” Ironically, however, this is also what makes a trade war against China unwinnable for the US.
With or without Trump's trade war, countries such as China, Russia and Iran have increasingly been de-dollarising their trade for years now. With the recent introduction of the petro-Yuan by China and the growing willingness of countries who feel hard done by the western-led economic order to adopt it, experts now believe that the dollar hegemony that the US enjoyed since the Second World War is close to its end.
According to financial commentator Max Keiser, “Countries worldwide are tired of funding America's 'military adventurism' by being a party to the 'Empire of Debt,' as it's known around the world—the US dollar,” and therefore, will likely join the de-dollarisation movement. Thus, if push comes to shove, China holds the ultimate weapon of mass economic destruction against the US—the ability to dump the trillions of US national treasury bonds that it holds, essentially crashing the dollar.
So while the US may push the EU and other western countries that have become overwhelmingly dependant on it around, it can no longer do the same to China. This is what most western countries have failed to recognise—that with the rise of Eurasian and Asian powers and closer ties among them, the world has already started to move away from the old western world order, and Trump may just be the first western leader to recognise that.
This could explain why under the guise of confronting China his trade policies are looking more threatening for the EU, Canada and the likes. However, that does not mean that the trade war that he started could not backfire on the US or escalate further to a point where it could negatively affect many other countries, including China, as among the uncertainty that exists because of the changing world order, it is becoming more and more difficult to predict the outcome of such decisions.
This is why world leaders would be well advised to remember that we are currently in unchartered territories. And that in times like this, it is best to avoid confrontations which, as history teaches us, can spiral out of control at any moment causing massive damage to the world economy, as well as to whatever world order is to emerge out of it.
Eresh Omar Jamal is a member of the editorial team at The Daily Star. His Twitter handle is @EreshOmarJamal.